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Checkers may have found match

If the burger chain gets shareholder approval, it will go private under the umbrella of Wellspring Capital Management.

By SCOTT BARANCIK
Published February 18, 2006

The Tampa burger chain known for those "You gotta eat" commercials sent its shareholders a fresh message Friday: We gotta sell.

Checkers Drive-In Restaurants, which has struggled on and off since issuing stock to the public in 1991, plans to go private. The 793-store chain said it will be acquired by a New York investment fund whose eclectic portfolio has included a diaper manufacturer, a technical college, a Fort Walton Beach golf retailer and an aluminum company bought from Tampa's Walter Industries.

Privately held Wellspring Capital Management LLC has agreed to pay $15 per share of stock for the business and assume its debts. The deal, valued at $188-million, culminates Checkers' nine-month hunt for a way to boost the value of its stock.

In a news release, Checkers chairman Peter O'Hara called the search "exhaustive" and said the Wellspring buyout "offered shareholders the best opportunity to maximize value."

But early reaction to the proposed deal was not all positive Friday, raising doubt as to whether most shareholders will approve a $15-per-share offer for a stock that closed at $15.16 a day before. Most buyout offers are higher than market price.

Tony Brenner, a restaurant-industry analyst at Roth Capital Partners, said Checkers' board of directors "appears to be selling the company on the cheap." He thinks shareholders would be better off if Checkers stayed public and pursued faster growth.

"I mean, granted, this (Wellington) may be the best deal they got, but I'm not sure why they feel compelled to accept," he said.

Michael Gallo, an analyst at CL King & Associates, said in a research note Friday that he thinks Checkers' stock is worth $17 to $18 per share. "We would be particularly concerned with this price if the deal involves management participation," he wrote. In a statement, Wellspring said Checkers' management team would be invited to stay on as equity owners.

O'Hara and Checkers chief executive Keith Sirois were unavailable for comment. Brad Cohen, the fast-food company's investor relations consultant, said it makes more sense to compare Wellington's offer price of $15 per share to the $12 market price the day before Checkers disclosed its plan to review strategic alternatives. That suggests a premium of 25 percent.

"The stock's higher than when we began the process, right?" he said.

Cohen declined to say how many companies cast a bid for Checkers' stock or what other strategic alternatives were considered.

If Checkers shareholders do fight the deal - none contacted Friday would speak on the record - it won't be the first time for Wellington. Shareholders are battling the investment firm's proposed buyout of Dave & Buster's, a Dallas restaurant/entertainment company, because they feel the offer price is too low.

The proposed buyout is the latest twist in Checkers' checkered history.

Founder and real estate developer James Mattei opened the chain's first four stores in 1986, in Mobile, Ala. When those stores floundered, he brought in Clearwater developer Herbert G. Brown as a partner and moved the company to Brown's home city. After going public in 1991, the company went on a debt-heavy growth spurt that nearly drove it into bankruptcy.

A bailout from the company that owns the Carl's Jr. and Hardee's restaurant chains saved it; a merger with the Rally's chain followed in 1999. Checkers moved to smaller offices in Tampa in 2001.

More recently, the company's board of directors clashed with Wall Street analysts who thought it should grow faster. By going private, the company avoids such external pressures and the growing financial burden associated with federal regulations. It's a move many small and midlevel companies like Checkers are taking notwithstanding Miami giant Burger King's recent decision to go public.

Wellspring has acquired, and resold, dozens of companies since its founding in 1995.

It was not clear Friday whether Checkers' new owner plans to keep its 200-person headquarters in Tampa or whether it will embrace ongoing sponsorship deals with the Tampa Bay Devil Rays and Tampa Bay Buccaneers. Wellspring officials did not return calls for comment.

Times researcher Angie Drobnic Holan contributed to this report, which included information from Times files. Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.